A Map of the New Normal: How Inflation, War, and Sanctions Will Change Your World Forever

Penguin Random House/May 2024

Reviewed by Paul Deegan

May 19, 2024

Having spent twenty years at Bank of Montreal – much of it doing public and government relations – I carefully followed the economists of the Big 5 banks. The banks attracted bright economists, but many fit the stereotype.

President Harry S. Truman famously quipped, “Give me a one-handed economist”; a response to economists giving him economic advice framed by the disclaimer, “On the one hand, and on the other…”

In recent years, two Big 5 economists have stood out as celebrities: BMO’s Sherry Cooper and CIBC’s Jeff Rubin. They were both colourful personalities who knew how to present on television, and they both made big, bold predictions.

Rubin correctly called the housing bust in the early 1990s and oil prices in the early 2000s – although his later call on oil, a decade later, proved too bullish. But I was eager to read A Map of the New Normal: How Inflation, War, and Sanctions Will Change Your World Forever, the latest book from the bestselling author and National Business Book Award winner.

Rubin likens the resumption of global trade after the COVID lockdown to continuing a game of Monopoly after someone has flipped the board. The diplomatic, economic, technological, and cultural confrontation that had been going on between the Atlantic and Eurasian powers for years has evolved into a sanctions war, which Rubin argues will prove far more lasting than the impact of the pandemic itself.

Rubin sees each new round of sanctions politicizing more and more of global trade, leaving the rules-based trading system in tatters and resurrecting on old demon – inflation. He argues that flooring the pedal on fiscal and monetary stimulus made sense during the pandemic, while millions of households were unable to work, but doing more of the same in today’s economic environment is akin to trying to extinguish a fire with gasoline.

Rubin notes that G7 countries spent $2.2 trillion on supports during the pandemic, with the United States accounting for $1.5 trillion of that. That left households flush with cash as the economy reopened, but — to cite a truism all economists, ambidextrous or not, agree on, there is no such thing as a free lunch. The US deficit tripled to 15 percent of GDP – the highest level since World War II. Here in Canada, the deficit increased tenfold – the largest increase as a percentage of GDP among all OECD countries. While central banks slashed rates, Rubin notes that a marriage of record-high deficits and record-low interest rates cannot last, and the longer the marriage – the more costly the divorce.

He also notes that incremental change can be hard to recognize. In the summer of 2023, economists started to note that French red wine and foie gras consumption was down; the price of pasta was up in Italy; and energy prices were spiking. Europeans were getting poorer. While increases in energy and food prices may not be considered “core” in a central banker’s assessment of inflation, they fuel headline (or all-items) inflation. It is clear that Rubin fears stagflation: high inflation with little or no economic growth. He notes that today’s conditions are the closest to mimicking the economy of the 1970s.

Ronald Reagan used to say that if Trivial Pursuit were designed by economists, it would have 100 questions and 3,000 answers. Rubin turns that quote on its head.

The pandemic broke supply chains and subsequent global tensions have only served to exacerbate the problem. Many — including Treasury Secretary Janet Yellin and Finance Minister Chrystia Freeland — argued for “friendshoring” to reduce reliance on China – which an increasing number of Americans see as “the enemy”, according to Pew Research. This decoupling by the US has caused Canada to pivot away from China as well. Canada is now forcing Chinese state-owned enterprises to divest certain critical minerals holdings.

Like massive fiscal and monetary stimulus, there are consequences to “friendshoring”. Virtually all of our allies are high-wage countries. In 2023, California, Apple’s home state, had a $15.50 minimum wage, while its Chinese supplier was paying just a little over $1 per hour. Increasingly, Rubin argues, global trade will be driven by geopolitical considerations rather than market imperatives – something that makes economists – including the author – bristle.

Rubin is clearly concerned that a growing number of economic heavyweights are lining up with America’s principal opponents, Russia and China, in an already expanded BRICS that now includes Iran and Saudi Arabia, as well as Egypt, Ethiopia and the UAE, with dozens more waiting to join. As BRICS membership grows, the reach of Western sanctions shrinks as much of the developing world looks to China – not the US – for global leadership and foreign direct investment. Sanctions directed at Ukraine, he argues, have failed to shred the Russian economy, but have shredded the very global trading order that we have been told was the basis for our collective prosperity.

The neoliberal order, predicated on the free flow of goods, capital, and technology, has been undermined. Rubin posits that the ultimate economic impact of sanctions may boomerang on the countries imposing them. Sanctions create a vacuum that is filled by domestic firms that replace and become competitors to Western firms. Rubin also notes that fault lines exist in many multilateral institutions. If the G7’s economic alliance could fracture, so too could NATO’s defence alliance.

For those expecting many bold predictions, this book may disappoint – although the author does offer a few. He sees tech stocks particularly vulnerable in this new terra incognita. He’s also part of the “higher for longer” camp when it comes to interest rates. He sees vulnerability in the housing market. He also sees downward pressure on the US dollar and the same for the junior dollars, including the Canadian and Australian currencies. Food, he believes, is already a battleground in the sanctions war.

But for those wanting a better glimpse of what our world may look like, Rubin both delights and delivers a bit of a scary picture. He acknowledges that getting the policy mix in today’s environment is tough, and it’s made even tougher because our ability to map the contours of this “new normal” is obscured by the fog of war. He concludes, “But amidst all the uncertainty that surrounds us, one thing has become increasingly clear: as we sail farther along this course of seemingly inevitable global conflict and accompanying profound economic change, there is no turning back to the world we once knew. It simply no longer exists.”

Ronald Reagan used to say that if Trivial Pursuit were designed by economists, it would have 100 questions and 3,000 answers. Rubin turns that quote on its head by raising more questions than answers. While mapping of tomorrow’s “new normal” may not be fully sketched out, it’s a very thoughtful effort and a great read. I give his latest book two thumbs up – way up.

Contributing writer Paul Deegan is CEO of Deegan Public Strategies, was a public affairs executive at BMO and CN, and served as an economic aide in the Clinton White House.